A valuation may be helpful to the company in many situations. Besides an impending sale, there may be other circumstances in which we need to know the value of a business.

If a capital injection is needed and an independent party is to assess what the business is worth before it applies for a loan from its bank, we provide the right basis for a decision when we determine the value. If there are disagreements among the owners in relation to the company’s shareholder agreement, one or more shareholders may wish to leave. If so, the party concerned needs to be paid a market price for its shareholding. In such case, a thorough analysis and correct pricing of the company are very important.

The valuation process – how do we find out what a company is worth?

Our valuation starts with a comprehensive analysis of the company. We analyse the business case and look at the market conditions, and who the customers and suppliers are. We look at products and services, assess management and staff competences, and the fundamental company-specific aspects. We prepare a thorough financial analysis and assess how this compares with the buyer’s interests as this has a crucial bearing on the value of the business.

The next step in the valuation process is to run through some specific issues:

property may be excluded from the calculation

normalisation of earnings

assessment of DCF

assessment of EBIT multiple

assessment of intrinsic value.

Important points about the value of the company

All companies are different. Background, future prospects and general conditions affect the assessment of how much a company is worth. For example, if the company has a few very large customers that dominate, while the rest of the customer portfolio is well spread out, what does that mean to the value and the risk? How should we take account of the fact that there has been a series of major investments, which are not yet reflected in earnings?

It may be that a company has had high earnings for several years, but for the last year or two, earnings have dropped – how should that be assessed? Perhaps the business has grown very quickly and earnings have increased significantly in recent years; this can be difficult to value. Or how do we weigh the fact that the owner is filling all the management functions and that there is no management team below the company owner?

In-depth analysis of business goals

The material that BDO Corporate Finance obtains on the company, and the meeting we hold with the owners is the starting point for our analysis of the business.
We review the business’s external partners, customers, suppliers, competitors and the market and competitive conditions that apply. For example, is it in a sector with relatively high earnings and moderate competition, or are we dealing with a business facing intense competition and a highly cyclical market.

The business is examined in detail. Customers and suppliers are carefully examined, and we ask whether the company is in any particular relationship of dependence. We look at the production machinery and the products. Are there sufficient ongoing investments, or does the production machinery need to be replaced? The organisation and the competence level of the staff are reviewed, and we assess whether there are key people with special skills that the business depends on.

Our financial analysis examines the financial statements; the profit and loss account and balance sheet, including debts, are included in the analysis, and if no budgets have been drawn up, we arrive at an estimated level of sales and earnings.

Valuation of the company

All of the issues we have listed on this page are included in our calculation of the value of the company. We apply known methods, all based on the company’s earnings and balance sheet. Several methods help us to cross-check the valuation of the company. We compare the figures with any similar transactions in the same or related industries. We compare the facts with our market knowledge and our continuous dialogue with investors, banks, etc. In this context we also assess the business’ marketability.

The valuation cannot factor in any synergies pertaining to a buyer, who may be a competitor, which can lead to cost-savings or added earnings from a merger. Synergies are entirely dependent on who is the purchaser. We can advise you on how potential synergies can be priced if there is an actual buyer of the company. This means that the price level given in our valuation is for the company viewed in isolation.

Written report with background and conclusions

The entire valuation is compiled into a report to the company management. Here we explain the whole background to the valuation and the assumptions made.

To prepare the report, we use the company’s accounts for the last three years together with information on customers, suppliers and other aspects of the business. It takes two to three weeks to prepare a valuation under normal circumstances.

We are always ready for a free and informal meeting on the valuation of your company.

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